2013 (1) TMI 437 - HC - Income Tax

Attachment of petitioner s bank accounts and rental income u/s 226(3) - disallowance u/s 10B and 14A - Held that - The petitioner s appeal against order dated 28.12.2011 u/s 246 wherein assessment was completed at an income of approximately four times of the returned income and tax demand including interest under Section 234B/C was raised is pending before the Appellate Authority. The petitioner had filed an application under Section 220(6) before the AO requesting that the entire demand was disputed in the appeal and since it was the first appeal the demand may be stayed till the disposal of the appeal. It is also a matter of record and as per the case of the respondents themselves a sum of Rs.25, 00, 000/- has been paid by the assessee against the said demand and a sum of Rs.44, 86, 414/- had also been collected. Under Section 220(6) where an appeal was pending against the assessment order the assessee was not to be treated as an assessee in default in respect of the amount in dispute in appeal in the discretion of the Assessing Officer on such conditions as he may think fit to impose. The Assessing Officer is thus required to pass a reasoned speaking order. As in the present case order passed by respondent no. 2 cannot be termed to be a speaking order in consonance with the requirements of Section 220(6) therefore the attachment order 17.10.2012 is quashed & given liberty to pass a fresh speaking order within 15 days from the date of receipt of this order.

Summary

Issues:
1. Writ petition under Articles 226 and 227 of the Constitution of India for quashing order attaching bank accounts and rental income under Section 226(3) of the Income Tax Act, 1961.
2. Claim of the petitioner regarding income, tax demand, and disallowances.
3. Defence by respondents regarding the availability of alternative remedies, payment details, and financial position of the assessee.
4. Justification of passing order under Section 226(3) of the Act while appeal was pending before the Appellate Authority.
5. Compliance with Section 220(6) of the Act regarding stay of demand during appeal.

Analysis:
1. The petitioner, engaged in IT-enabled services, filed a writ petition challenging the attachment of bank accounts and rental income under Section 226(3) of the Income Tax Act, 1961. The tax demand was raised significantly higher than the declared income, mainly due to disallowances under Section 10B and Section 14A of the Act. The petitioner had filed appeals against these additions, seeking a stay of demand pending appeal, which was rejected without a speaking order. The defence argued that the petitioner had alternative remedies available and failed to provide a payment schedule, questioning the financial position and substantiation of claims by the petitioner.

2. The respondents contended that the petitioner failed to pay the entire outstanding demand, with only partial payments made, and had not proven a weak financial position. The order under Section 226(3) was justified based on non-compliance with payment requirements and lack of evidence supporting the petitioner's claims. The attachment of bank accounts and rental income was deemed necessary for recovery, considering the substantial outstanding demand.

3. The Court noted that the petitioner's appeal against the assessment order was pending, and as per Section 220(6) of the Act, the Assessing Officer should treat the assessee as not in default during the appeal. However, the order passed by respondent no. 2 lacked reasoning and did not fulfill the requirements of a speaking order under Section 220(6). Consequently, the order attaching bank accounts and rental income was quashed, granting the Assessing Officer the opportunity to pass a fresh speaking order within 15 days.

4. In conclusion, the writ petition was disposed of with the directive for a new order to be issued in compliance with the law. The judgment emphasized the importance of following procedural requirements, especially in cases involving the attachment of assets during pending appeals, to ensure fairness and proper legal considerations.